BENGALURU, Sept 11 (Reuters) - Gold prices held steady during Asian trade on Tuesday as investors remained on the sidelines amid expectations of a U.S. interest rate hike this month and on fears of an escalation in the Sino-U.S. trade war.

Spot gold was mostly unchanged at $1,195.79 an ounce at 0654 GMT. U.S. gold futures rose 0.1 percent to $1,201.60.

Strong U.S. payrolls data last week cemented expectations that the U.S. Federal Reserve will raise interest rates in September, in what would be its third hike this year, with expectations of one rise more in December.

Higher rates increase bond yields, making the non-yielding bullion less attractive and tend to boost the dollar.

“The precious metal has shown excruciating weakness as the U.S. economy demonstrated a stellar performance in Q2 2018,” said Benjamin Lu, commodities analyst at Phillip Futures.

Traders were bracing for a potential escalation in the Sino-U.S. row after President Donald Trump raised the stakes on Friday by saying he was ready to impose tariffs on virtually all Chinese imports to the United States.

The rhetoric has made investors buy the dollar in the belief that the United States has less to lose from a trade war - making dollar-priced gold more expensive for non-U.S. buyers.

“The imposition of increased tariffs (between the United States and China) will indefinitely damage global economic conditions in the longer term ... However, safe-haven demand remains weak for the shorter term as markets fixate on stronger dollar prospects,” Lu said.

Gold prices dropped more than 12 percent from a peak in April with the metal losing its safe-haven status to the U.S. dollar, driving investors to raise their bearish bets on Comex gold and liquidate gold exchange traded funds.

“With the greenback supported by expectations of higher U.S. interest rates, this may translate to nothing but further pain for gold,” said Lukman Otunuga, research analyst at FXTM, adding that spot prices could drop to $1,185-$1,160 levels in the short- to medium-term.

Meanwhile, physical gold buying waned slightly in Asia this week as investors waited to see if prices would fall further, traders said.

The yellow metal is finding strong resistance at $1,200, with investors selling into any rallies that threaten to push it above that level, ANZ analysts said in a research note.

Palladium gained 0.6 percent to $981.10 an ounce, after hitting its highest in nearly 12 weeks at $991.15. (Reporting by Nallur Sethuraman in Bengaluru, Editing by Joseph Radford and Sherry Jacob-Phillips)